Question
A 2-month European put option on a non-dividend paying stock is currently selling for $2. The stock price is $47, the strike price is $50,
A 2-month European put option on a non-dividend paying stock is currently selling for $2. The stock price is $47, the strike price is $50, and the risk-free rate is 6% per year(with continuous compounding)for all maturities.
Does this create any arbitrageopportunity? Why?
Design a strategy to take advantage of this opportunity and specify the profit you makeShiw your work!!
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International Finance Theory and Policy
Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz
10th edition
978-0133425895, 133425894, 978-0133423631, 133423638, 978-0133423648
